Highlights
Results are solid for the monthly 10-year note auction, where coverage, at 2.54, was slightly above the average for this year despite the day's outsized $133 billion of Treasury supply. And the bidding was very tight today, in contrast to last month's sloppiness, taking down the high yield to the awarded 3.209 percent, more than a basis point below the 1:00 bid. End investor demand was also strong, with non-dealers taking down 75 percent of the $27 billion offering, a share exceeded this year only in the auctions in January and September. The awarded high yield, at 3.209 percent, was 1.6 basis points below last month's awarded rate, which was the highest for the 10-year since April 2011.

Definition
Treasury notes are sold at regularly scheduled public auctions. The competitive bids at these auctions determine the interest rate paid on each Treasury note issue. The level of demand for an auction is measured by coverage which is the ratio of bids tendered to bids accepted. The higher this number, the stronger the demand. A group of securities dealers, known as primary dealers, are authorized and obligated to submit competitive tenders at Treasury auctions. Dealers can hold the notes, resell the notes to their clients or trade them with other securities firms. Typically, the New York Fed approves about 20 securities firms to be primary dealers but that number dropped sharply during the 2008 financial crisis as some were merged into other firms or went bankrupt. The Fed has been rebuilding that number regularly and the latest list can be found here. The Treasury announces the amount, date and time of the 10-year note auction monthly. 10-year notes are announced around the first week of the month and then auctioned the following week. Generally, the 10-year notes are issued (settled) on the 15th of the month, unless it falls on a weekend or holiday, and then they are issued on the next business day. (Department of the Treasury)
Why Investors Care

Data Source: Haver Analytics

Between 2000 and 2011, the spread
between the 10-year note and the
fed funds rate averaged 173 basis
points, while the average spread
for the period covered by the
chart, which started in January
2012, was 185 points. With the
Federal Reserve doing its utmost
to stimulate the economy by
keeping the fed funds rate
unchanged at just barely above
zero until December 2015, the
spread reached a peak of 288
basis points for the period in
January 2014, when it began a
meandering decline that reached a
low of 106 basis points in
September 2017. The spread was
probably kept lower than it would
have been had it not been for
Quantitative Easing, whereby the
Federal Reserve put a damper on
the yields of longer-maturity
treasuries while purchasing, in
three stages, nearly $4 trillion
of U.S. treasuries and mortgage-
backed securities. Nevertheless,
the spread continued to decline
even after Quantitative Easing
purchases ended in October 2014,
perhaps in part due to the
Federal Reserve's maintenance of
the balance sheet size through
continued purchases equalling any
redemption amounts until October
2017, when the Federal Reserve
commenced a gradual program to
bring down the size of the
balance sheet by limiting the
redemption purchases.
Historically, the spread has
widened if the market's
expectations of economic
acceleration or rising price
inflation was out of sync with a
fed funds rate that was perceived
as too low and accomodative, and
shrank if expectations of
economic slow growth or weakness
and low or declining inflation
were accompanied by a fed funds
rate that was seen as too high or
restrictive. This chart shows the
high yield awarded at monthly 10-
year note auctions since January
2012, including the latest
auction results.Data Source: Haver Analytics